Sharing of rented premises by group entities– obligation to deduct TDS once- also check out agreement terms

In a case of common use of premises among subsidiary and holding entity the agreement for rent is entered by McCann Erikson (India) Pvt. Ltd., the holding company with the landlord in Asstt. CIT v. Result Services (P) Ltd. (2012) 52SOT586 who paid the rent and deducted tax thereon and later received reimbursement from the subsidiary of its share of use of common space. On the amount reimbursed by the subsidiary to the holding there was no tax deducted as a result of which the AO disallowed the rent expense in subsidiary case u/s 40(a) (ia).

The Delhi bench of ITAT however gave relief to the assessee especially for the reason that the rent agreement between the holding and the lessor did provide for a clause enabling use of leased premises by its subsidiaries, affiliates, Group entities, associates hence what the subsidiary paid in this case was by way of reimbursement of rent portion.

It is thus wise to revisit the rent agreement of premises for common use among associate group entities. In the absence of any such clause there shall fall an obligation upon the associate/subsidiary for tax withholding alleging a sub-lease arrangement.